BP barred from new US gov't contracts, land leases

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Last Updated: Wed, Nov 28, 2012 22:15 hrs

The Obama administration put a stop to new federal contracts with BP on Wednesday, admonishing the British oil company for a "lack of business integrity" and also disqualifying it indefinitely from winning new leases to drill on taxpayer-owned lands.

A lengthy list of criminal counts against BP stemming from the Deepwater Horizon disaster in the Gulf of Mexico in 2010 prompted the Environmental Protection Agency to temporarily suspend new contracts with BP and its affiliates, the agency said. Existing contracts won't be affected.

"EPA is taking this action due to BP's lack of business integrity as demonstrated by the company's conduct with regard to the Deepwater Horizon blowout, explosion, oil spill and response," the EPA said in a statement.

Eleven oil workers were killed when a rig explosion sent oil gushing unabated into the Gulf in the largest oil spill in U.S. history. More than two years later, BP faces criminal proceedings and massive civil claims related to environmental damage. Wednesday's decision creates yet another obstacle in BP's uphill battle to revive its tarnished image in the U.S. and abroad.

The London-based company sought to minimize the effects of the suspension, and said it already is working with the government to resolve the concerns. BP said it has been informed by the EPA that an agreement that would lead to lifting the suspension is already in the works.

"The company has made significant enhancements since the accident," BP said in a statement, noting its efforts to adopt new drilling standards and highlighting its heavy investments in the U.S. economy.

A leading supplier of energy for the U.S. military, BP in September won two contracts with the Defense Department to provide almost $1.4 billion in fuel products over a yearlong period, according to federal contracting announcements. Those contracts, and any others already signed with other U.S. agencies, will remain in effect.

Of greatest concern to BP, analysts said, is the prospect of missing out on tens of millions of acres that the government plans to lease for drilling to oil and natural gas companies in the coming months. BP already is the largest deep-water leaseholder in the Gulf, the company said.

"This is really historic," said Amy Myers Jaffe, an energy expert at the University of California-Davis. "It's going to send a chill down the spine of the chairman of every company that operates in the United States, because it means if you don't get this safety question correctly, it can really dramatically affect your business."

The Obama administration's decision made BP ineligible to bid for leases hours before the federal government held a sale for drilling in more than 20 million acres offshore in the Gulf. Thirteen offshore companies submitted bids totaling more than $133 million. BP did not participate. The government's next sale is scheduled for March 2013 and will make 38 million acres available.

The EPA said a suspension is standard practice when a criminal case raises responsibility questions about a company. BP announced earlier this month that it will plead guilty to manslaughter, obstruction of Congress and other charges and will pay a record $4.5 billion in penalties. Attorneys and a federal judge will meet in December to discuss a plea date.

Environmental activists and lawmakers who have criticized BP heralded the suspension, calling it an appropriate penalty resulting from criminal behavior.

"When someone recklessly crashes a car, their license and keys are taken away," said Massachusetts Rep. Ed Markey, the top Democrat on the House Natural Resources Committee. "The wreckage of BP's recklessness is still sitting at the bottom of the ocean."

BP's optimism Wednesday that the suspension would be lifted quickly appeared to conflict with a complex set of steps the EPA said the company must take before the agency will begin to consider lifting the ban.

An EPA official said Wednesday that BP's plea agreement in the criminal case includes a provision for how BP can satisfy the government's concerns. That order, if the court accepts it during sentencing, would give BP 60 days to address the conditions that led to violations. If the government approves the plan, it becomes part of BP's criminal probation.

Even once the criminal case is resolved, the suspension still could remain in effect as a civil case against BP goes forward, said the EPA official, who spoke on condition because the official was not authorized to discuss terms of the agreement publicly. BP's resistance to billions of dollars in civil penalties might be seen as a sign it still hasn't taken responsibility for the disaster.

BP faces huge claims covering the billions of dollars in civil penalties the U.S. government and the Gulf states are seeking because of environmental damage. A trial is scheduled for early next year, although negotiations to reach a settlement have been under way. Attorney General Eric Holder has said the government intends to show in the civil case that BP was grossly negligent in causing the spill.

Shares of BP PLC, the parent company, initially dropped on the New York Stock Exchange when the Obama administration announced the suspension, but had recovered by the close of trading Wednesday.

"How big this is depends on how long it lasts," said Phil Weiss, an analyst at Argus Research, adding that if BP misses out on multiple sales of public lands, "it's a much bigger concern."

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Associated Press writers Bob Barr in London, Jonathan Fahey in New York and Pete Yost in Washington contributed to this report.